UBS loss may result in trading risks curbs

LONDON | ZURICH: Less than two months after UBS chief executive officer Oswald Gruebel said the bank had "one of the best" risk-management units in the industry, his firm posted a $2-billion loss from alleged "unauthorised trading."

The disclosure exposed flaws in the bank's risk controls that may prompt regulators to restrain lenders from making bets with their own capital, academics and analysts said. Britain's Financial Services Authority (FSA) and its Swiss counterpart on Saturday said they would also investigate the UBS trading losses.

Meanwhile, UBS chief executive Oswald Gruebel is not considering stepping down in the wake of the crisis provoked by a London trader suspected of causing the $2-billion loss for the bank, he told Swiss newspaper Der Sonntag on Sunday.

Asked about calls for his resignation that have mainly been expressed by members of Switzerland's Social Democrats, he said: "That is purely political. I am not thinking about stepping down." He said it was up to the board to decide on this matter. In the short interview, Gruebel assumed responsibility for all that happens at the bank. "But if you ask me whether I feel guilty, I say no," he said.

The Swiss lender said on Saturday the loss at its investment bank was caused by a trader it didn't identify. Police in London on Sunday charged Kweku Adoboli, a 31-year-old UBS employee, on suspicion of fraud by abuse of position. He worked on the Delta One desk, a team that handles trades for clients and took risks with the bank's own money in arranging trades.

The regulators' investigation, to be carried out by a third party, will focus on "the control failures which permitted the activity to remain undetected" and "will include an assessment of the overall strength of UBS' controls to prevent authorised or fraudulent trading activity in its investment bank," the FSA said in an e-mailed statement on Sunday.

Needs to Be Done

The loss may revive calls for firms to increase controls on risk and separate investment banking from retail businesses.

"Whether it's because of an irresponsible trader or failure in the prevention of risk taking, you can't stop some investment banks taking on more risk than others," said Martina Metzger, executive director of the Berlin Institute of Financial Market Research. "What you can do is separate investment banking from depositors' money."